New York Markets After Hours

Oracle giddiness is building up to disappointment

Analysis: The company has missed expectations, yet there’s ever-present optimism

By

MarekFuchs

Columnist

AFP/Getty Images

Oracle CEO Larry Ellison

Oracle publishes its earnings after the stock market closes today and, though the company’s days of consistently crushing it are over, you wouldn’t know it from the media and traders, who appear fairly giddy.

Oracle
ORCL, -0.67%
used to lord it over the stock market. Now: not so much. The business of peddling hardware and software to corporations has simply turned a bit heat-hazed. Just ask IBM
IBM, -1.33%
Cisco
CSCO, +0.31%
Hewlett-Packard
HPQ, -1.30%
and SAP
SAP, -0.76%
For Oracle’s fiscal fourth quarter, analysts are expecting 89 cents a share, according to FactSet. That number excludes one-time items and nearly matches last year’s 87 cents. Revenues, which have essentially been stuck in the mud for quite some time, are expected to come in at $11.48 billion, edging up from $10.9 billion a year earlier.

And that’s the good news. The bad? Oracle has had trouble meeting expectations lately.

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Oracle’s stock, though, is near a 52-week high. Moreover, little of Oracle’s challenges are reflected in the earnings preview coverage. It’s all part of a recent current of madness in the run-up to Oracle’s earnings over past quarters: giddiness until the moment Oracle reports. Then a degree of despair.

Sanity, thy name is not media.

And here we go again. The media has already broken out the bubbly over Oracle’s fourth-quarter release. Barron’s somewhat poetically referred to the “bull’s coo,” as Seeking Alpha waxed prophetically that the stock’s upward movement signals a good quarter. Call it the “uptick as automatic validation rule.” As if equities never move in mistaken directions.

Back in March, right before third quarter earnings hit up, we had the same, with headlines like this one: “Oracle Earnings Preview: Soaring Into The Cloud?”

Got that? Up, up and away.

Of course, the actual numbers were less soaring in clouds than stranded in fog. Said the media at that point: “Oracle Earnings: Another Quarter, Another Miss.”

That’s right — another miss. The second quarter was also preceded by happy coverage and proceeded by — you guessed it — a funeral dirge.

In fact, over the past three years, Oracle has pulled up short of expectations about a quarter of the time. Revenues have now pretty much been lame for more than two years and counting. Past is not always prelude, but, considering Oracle’s fractured recent track record, why aren’t the media and traders backing off on the puffery just a bit?

Part of the explanation is simple. Oracle benefits from the reflected glory of its distant past. It was a great company; it still is a very good company, only one operating in a changed and hyper-competitive field. Partly, too, the media is simply playing a game it can never lose. Leading up to the earnings, it talks about huge potential. If that potential is not met, the media merely says: “Wall Street was surprised by the results.” We never seem to hear that the media was “surprised,” much less “wrong.”

Oracle is also selling the potential of the sky above. Specifically, the cloud. Dreaming big excites the media and traders, and Oracle is talking up the untapped potential of cloud computing. As a direct result, we’re seeing a ton of headlines like “Larry Ellison Wants to Make Oracle King of the Cloud.”

Once the numbers hit up, though, we are reminded once again that long-term promise does not necessarily translate into short-term success. Already, price competition in cloud computing has become (and I apologize for this groaner ahead of time) cumulative.

Then there are the takeovers. This go round, everyone is panting about a rumored $5 billion deal for Micros Systems
US:MCRS
Oracle is known as a super-aggressive acquirer of companies. Any company on the prowl is always selling the dream of a great combined success. Forbes, for example, termed the prospect of an Oracle-Micros deal “a win-win potential combination.” But if cooler heads can prevail for a moment — well, mergers are a lot harder to consummate and integrate than the giddy coverage seems to imply.

So when you read excited coverage of Oracle’s coming earnings, just remember the company’s recent track record is spotty, at best, to say nothing of the fact that the definition of insanity is doing the same thing over and over and expecting a different result.

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